According to the provisional figures compiled by the Federal Board of Revenue, only 580,000 individuals and companies have filed their annual income tax returns by the expiry of an extended deadline. In a situation where tax to GDP ratio in Pakistan is already the lowest in the region, the shrinking tax base should be a matter of concern for the policymakers. Reports suggest that the collections also fell short of meeting the target by Rs40 billion in the first four months of the current fiscal year. The low tax collection is not the failure of the FBR, but the mechanism due to which the number of tax returns is not compatible with the number of potential taxpayers in the country. Finance Minister Ishaq Dar took various steps to enhance tax base, but ended up in enhancing tax ratios by tightening the noose around the neck of the individuals and companies that were already registered as taxpayers. The tax base cannot be enhanced by issuing royal decrees or orders, but devising a proper mechanism to automatically bring the potential taxpayers under the tax net.
Prime Minister Shahid Khaqan Abbasi has also adopted the hackneyed path of his predecessors and declared that the broadening of the tax base is his foremost priority without giving guideline or a practical shape to the tax collection system. However, the number of tax returns filed until October 31 stood at 580,000 whereas September 30 was the original date for filing tax returns for individuals, association of persons and companies.The finance minister had extended the deadline for one month to match the last year’s performance.
At least 4.3 million people are registered taxpayers, but the FBR has no mechanism to ascertain how many of them are actually drawing the taxable income. Many individuals or companies take tax number to fulfill certain requirements for the government contracts and are never been able to get taxable income. At least 1.21 million individuals and companies had filed income tax returns last year. However, it is not clear how many businesses have been closed down and how many individuals have left the country. Without access to the financial transactions of taxpayers or potential taxpayers, sending across the board notices will only open the floodgates of corruption. The government should have information about every business, small or large and its financial position, its liabilities and all other details. A blind application of the wand of law will result in failure and the nation has been bearing the brunt of this flaw and practice for the last many years.
